HSBC USA v. Roman A. Palacios (2010)

MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT, # 104

The present foreclosure action was commenced on February 25, 2008, by service of process on the defendants, Roman A. Palacios and Mortgage Electronic Registration Systems, Inc. (MERS).  Thereafter, on February 29, 2008, the plaintiff, HSBC Bank USA, National Association as Trustee for Nomura Asset Acceptance Corporation Mortgage Pass-Through Certificates, Series 2006-AF2 (HSBC), filed a single-count complaint seeking foreclosure of certain property and alleging the following facts.   Palacios is the owner of property in the town of Scotland (the Scotland property).   On or about March 31, 2006, Palacios delivered a note in the principal amount of $193,600 to Alliance Bancorp (Alliance) and a mortgage on the subject property to MERS, as nominee for Alliance.   The mortgage was recorded in the Scotland land records.   The mortgage was subsequently assigned to HSBC and said assignment was also recorded in the Scotland land records.   HSBC is currently the holder of the subject note and mortgage.   Palacios defaulted on the note and HSBC elected to accelerate the balance outstanding on the note, declaring the note to be due in full, and to foreclose the mortgage.

On April 17, 2008, Franklin and Renee LaNye filed a motion to intervene in the present matter, accompanied by an answer and special defense.   The motion to intervene was granted by the court, Potter, J., on May 7, 2008.   The LaNyes allege in their answer that Palacios was not the owner of the Scotland property at the time the note was executed and, therefore, he did not possess the authority to execute and deliver the mortgage described in the complaint.

The LaNyes allege, by way of special defense, that they entered into a real estate transaction with Palacios, conveying the Scotland property to him by warranty deed.   Nevertheless, the LaNyes allege that the deed is an equitable mortgage, constituting a commercial transaction, and subject to their right of rescission.   They further allege that they exercised their right to rescind the conveyance on January 17, 2007, and, therefore, Palacios had no right to the Scotland property at the time he delivered the subject note and mortgage to Alliance and MERS, respectively.

On April 20, 2010, HSBC filed the present motion for summary judgment against Palacios, MERS and the LaNyes.   The motion is accompanied by a memorandum of law.   Palacios, MERS ¹ and the LaNyes have all failed to oppose the motion for summary judgment.

The matter was scheduled for argument at the May 10, 2010 short calendar.²

“Summary judgment is a method of resolving litigation when pleadings, affidavits, and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law ․ The motion for summary judgment is designed to eliminate the delay and expense of litigating an issue when there is no real issue to be tried.”  (Citations omitted.)  Wilson v. New Haven, 213 Conn. 277, 279, 567 A.2d 829 (1989).  “However, since litigants ordinarily have a constitutional right to have issues of fact decided by a jury ․ the moving party for summary judgment is held to a strict standard ․ of demonstrating his entitlement to summary judgment.”  (Citation omitted;  internal quotation marks omitted.)   Kakadelis v. DeFabritis, 191 Conn. 276, 282, 464 A.2d 57 (1983).

“As the party moving for summary judgment, the [movant] is required to support its motion with supporting documentation, including affidavits.”  Heyman Associates No. 1 v. Ins. Co. of Pennsylvania, 231 Conn. 756, 796, 653 A.2d 122 (1995).   The well established rule is “that a summary judgment rendered upon the issue of liability only, without deciding damages, is not a final judgment from which an appeal lies.”  Balf Co. v. Spera Construction Co., 222 Conn. 211, 212, 608 A.2d 682 (1992).  “[J]udgment is not completed until damages have been assessed.”  Tureck v. George, 44 Conn.App. 154, 157, 687 A.2d 1309, cert. denied, 240 Conn. 914, 691 A.2d 1080 (1997).

HSBC moves for summary judgment as to liability only on the ground that there is no genuine issue of material fact in the present matter and that it is entitled to judgment as a matter of law.   Specifically, HSBC argues that it has established a prima facie case for mortgage foreclosure against Palacios and that the LaNyes' special defense regarding rescission of the conveyance of the Scotland property to Palacios is barred by res judicata because substantively similar claims were raised in a federal action and dismissed with prejudice, against the LaNyes.   In support of its motion, HSBC submits the following evidence:  (1) an affidavit of debt, (2) an affidavit of an attorney who appeared in the federal action, (3) a copy of the subject note and mortgage,³ (4) a copy of the assignment of mortgage and (5) a copy of a warranty deed conveying the property from the LaNyes to Palacios.

Neither Palacios nor MERS offers an argument in opposition to HSBC's motion for summary judgment.   The LaNyes, likewise, have failed to respond to HSBC's motion.

“In a mortgage foreclosure action, to make out its prima facie case, the foreclosing party ha[s] to prove by a preponderance of the evidence that it was the owner of the note and mortgage and that [the mortgagee] had defaulted on the note.”  (Internal quotation marks omitted.)  Franklin Credit Management Corp. v. Nicholas, 73 Conn.App. 830, 838, 812 A.2d 51 (2002), cert. denied, 262 Conn. 937, 815 A.2d 163 (2003).  “Furthermore, the foreclosing party must demonstrate that all conditions precedent to foreclosure, as mandated by the note and mortgage, have been satisfied.”  Bank of New York v. Conway, 50 Conn.Sup. 189, 194, 916 A.2d 130 (2006), citing Bank of America, FSB v. Hanlon, 65 Conn.App. 577, 581, 783 A.2d 88 (2001).

The warranty deed attached to HSBC's motion establishes that the Scotland property was transferred from the LaNyes to Palacios.   Copies of the note and mortgage delivered to Alliance are signed by Palacios.   The affidavit of debt, executed by an officer of HSBC's loan servicer, Wells Fargo Bank N.A., establishes that the note and mortgage were assigned from Alliance to HSBC, that Palacios defaulted on his payment obligations under the note, that HSBC provided to Palacios written notice of default pursuant to the terms of the note and mortgage and that Palacios failed to cure the default.   Moreover, the defendants do not refute any of HSBC's averments or the veracity of the evidence contained in HSBC's submissions.   HSBC has sufficiently demonstrated that there is no genuine issue of material fact that it owns the note and mortgage or that Palacios has defaulted on the note.   HSBC, through its evidentiary submissions, has demonstrated that all conditions precedent to foreclosure, as mandated by the note and mortgage, have been satisfied.   As such, HSBC has established a prima facie case for foreclosure.

“When a complaint and supporting affidavits establish an undisputed prima facie case for a foreclosure action, a court must only determine whether [a] special defense is legally sufficient before granting summary judgment.”   LaSalle National Bank v. Shook, Superior Court, judicial district of New London, Docket No. 549266 (July 13, 2000, Martin, J.), aff'd, 67 Conn.App. 93, 787 A.2d 32 (2001).

The LaNyes allege by way of special defense that Palacios never had authority to execute or deliver the subject note and mortgage, because any grant of right to the Scotland property was rescinded by them.   In particular, the LaNyes allege that any purchase contract they had with Palacios served as an equitable mortgage and was, thus, a consumer credit transaction subject to a right of rescission.   Additionally, the LaNyes allege that Palacios, along with certain mortgage brokers involved in the transaction between the LaNyes and Palacios, violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq., by failing to provide necessary disclosures.   The LaNyes further allege that they commenced a federal action addressing the rescission of the mortgage granted to Palacios, among other state and federal violations.

“The doctrine of res judicata holds that an existing final judgment rendered upon the merits without fraud or collusion, by a court of competent jurisdiction, is conclusive of causes of action and of facts or issues thereby litigated as to the parties and their privies in all other actions in the same or any other judicial tribunal of concurrent jurisdiction ․” (Citations omitted;  internal quotation marks omitted.)  New England Estates, LLC v. Branford, 294 Conn. 817, 842, 988 A.2d 229 (2010).  “[T]he elements of res judicata are (1) a final judgment on the merits in an earlier suit, (2) sufficient identicality between the causes of action asserted in the earlier and later suits, and (3) sufficient identicality between the parties in the two suits.”   Summitwood Development LLC v. Roberts, Superior Court, complex litigation docket at Waterbury, No. X06 CV 04 402459 (May 13, 2010, Stevens, J.).

The LaNyes brought a federal suit against HSBC and Palacios, among other parties, alleging claims sufficiently similar to those contained in their special defense.   In their federal action, the LaNyes alleged that, pursuant to TILA, the conveyance of the Scotland property to Palacios was an equitable mortgage and, thus, a consumer credit transaction subject to the LaNye's right of rescission.   Moreover, the LaNyes alleged that the defendants in the federal action failed to provide the requisite disclosures and notices under TILA. The affidavit of counsel attached to the present motion, along with HSBC's unchallenged averments, establish that there is no issue of fact that the federal action was dismissed with prejudice against the LaNyes.⁴  Thus, the LaNyes' special defense is barred by the doctrine of res judicata.

HSBC has established a prima facie case for foreclosure.   Furthermore, the LaNyes' special defense is barred by res judicata and is, therefore, legally insufficient to defeat HSBC's motion for summary judgment.   For the foregoing reasons, the motion for summary judgment as to liability is granted.

THE COURT

Potter, JTR

FOOTNOTES

FN1. The LaNyes, as intervening defendants claiming rights in the Scotland property superior to MERS, moved to default MERS for its failure to appear in the present action on March 26, 2009.   That motion was granted by the clerk on April 1, 2009..  FN1. The LaNyes, as intervening defendants claiming rights in the Scotland property superior to MERS, moved to default MERS for its failure to appear in the present action on March 26, 2009.   That motion was granted by the clerk on April 1, 2009.

FN2. Counsel for HSBC attended oral argument.   No representative for Palacios, MERS or the LaNyes was present at the short calendar call.   The motion for summary judgment was, therefore, taken on the papers..  FN2. Counsel for HSBC attended oral argument.   No representative for Palacios, MERS or the LaNyes was present at the short calendar call.   The motion for summary judgment was, therefore, taken on the papers.

FN3. The plaintiff states in its memorandum in support of its motion for summary judgment that original or certified copies of these documents “will be produced at the hearing on the motion for summary judgment.”.  FN3. The plaintiff states in its memorandum in support of its motion for summary judgment that original or certified copies of these documents “will be produced at the hearing on the motion for summary judgment.”

FN4. An order of dismissal was entered by Judge Kravitz in the federal action on November 24, 2009.   The federal case was subsequently reopened to permit HSBC to file a motion to dismiss their counterclaims, crossclaims and affirmative defenses without prejudice.   Nevertheless, the federal matter was ultimately dismissed with prejudice against the LaNyes prior to the filing of the present motion..  FN4. An order of dismissal was entered by Judge Kravitz in the federal action on November 24, 2009.   The federal case was subsequently reopened to permit HSBC to file a motion to dismiss their counterclaims, crossclaims and affirmative defenses without prejudice.   Nevertheless, the federal matter was ultimately dismissed with prejudice against the LaNyes prior to the filing of the present motion.

Potter, Russell F., J.T.R.